Is Clearwire a Good Investment at a Buck per Share?

What is Clearwire's core business?

In laymen terms, they provide fourth generation wireless broadband services to both the retail and wholesale markets. This includes high-speed mobile Internet and residential Internet access nationwide. Clearwire's (CLWR) 4G mobile broadband network operates on WiMAX. This is a parallel equivalent of the industry standard LTE .

What are Clearwire's major customers?

Sprint's business accounts for "substantially all" of Clearwire's wholesale revenue. On the retail side, subscribers only make up about 10% of the total business. Whereas, the wholesale subscribers make up the majority of 90% of the business.

If Sprint were to rely on its own network, Clearwire's financial would suffer greatly.

Competitive Disadvantages

WiMAX versus LTE

Years back, Clearwire decided to invest in WiMAX, but the industry has moved towards LTE. Whereas, both AT&T (T) and Verizon (VZ) have LTE networks. Sprint (S) hold an approximately 48% stake in Clearwire and has heavily relied on Clearwire's networks. As of Q2 2012, Sprint is still in the early stages of deploying LTE.

Comparing Q2 2012 to Q4 2011, property, plant, and equipment decreased about $500M due to the fact that any projects that are not required to deploy LTE technology or that were no longer viable due to the development of the LTE network architecture were abandoned and costs written down. In addition, any network equipment not required to support our network deployment plans or sparing requirements were also written down to estimated salvage value.

As a result now, Clearwire is playing catch up to deploy LTE alongside WiMAX at a cost.

Wireless Spectrum Licenses

A wireless spectrum license is a specific spectrum license that grants the licensee the privilege to use a portion of the frequency spectrum in a given geographical area for wireless purposes.
All spectrum in the US and generally internationally is controlled by each country's equivalent of the FCC. In some cases and some countries portions of the spectrum are set aside for general use such as license-free networks. Part of the spectrum in most countries is controlled for military use, public safety and commercial services. Only the entities so entitled may use the frequency bands they have rights to. Considering the wide variety of International differences in other areas of public policy, radio spectrum is remarkably homogenous.
Think of spectrum as real estate; there is only so much wireless "property" available. Unless the FCC releases/auctions more to be used for wireless services, companies will have to buy from existing companies who have licensed them.

According to CNET, whose data is derived from Verizon, in the top 21 markets in the U.S., AT&T has the most spectrum about 284 MHz more spectrum than its closest competitor, Verizon Wireless.

Clearwire has a fair amount of spectrum, but it doesn't look like AT&T or Verizon will be making any purchases from them soon.

Not to add insult to injury, but Google sold its 29.4 million Clearwire shares on March 1 for $2.26 each, or $66.5 million. The original investment was $500 million in 2008. 

Conclusion: While it's market cap is just a tad over a billion and trading at just a couple cents over a buck per share, this leaves us to wonder, how Clearwire can sustain itself in the long-run.

Disclaimer: This article is written for informational purposes only and isn't intended as investment advice.

Disclosure: I have no position in CWLR, T, VZ, or S.

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